Former MIT dean and Harvard son plead guilty in $500M hedge fund scam

Tuesday

Aug 19, 2014 at 8:30 AMAug 19, 2014 at 8:30 AM

Two Boston-area hedge fund managers were charged Aug. 12 with conspiracy to commit securities fraud, wire fraud and obstruction of justice, according to U.S. Attorney Carmen Ortiz.Gabriel Bitran, 69, of Newton, a former professor and associate dean of the MIT Sloan School of Business, and his son, Marco Bitran, 39, of Brookline, a Harvard Business School graduate and money manager, were charged with conspiracy to commit securities fraud, wire fraud and obstruction of justice in connection with their hedge fund businesses, GMB Capital Management and GMB Capital Partners.Both Gabriel Bitran and Marco Bitran have agreed to plead guilty to the charge.It is alleged that from 2005 through 2011, Gabriel Bitran and Marco Bitran solicited and maintained investors in their hedge fund and investment advisory businesses with false claims that, for eight or more years, they had managed friends and family funds, delivering average annual returns between 16 percent and 23 percent, with no down years.The Bitrans falsely told investors that the money in GMB hedge funds would be invested according to a complex mathematical trading model developed by Gabriel Bitran and based upon his MIT research on optimal pricing theory, according to the U.S. Attorney’s Office.By means of their fraudulent representations, the Bitrans induced investors to entrust over $500 million to their businesses. From this money, the Bitrans paid themselves millions of dollars in management fees for managing the funds in which they had fraudulently induced people to invest.In the fall of 2008, several of the Bitrans’ hedge funds had disastrous losses, resulting in investors losing 50 percent to 75 percent of their principal in many instances. Nonetheless, in the fall of 2008, as their funds were experiencing these losses, Gabriel Bitran and Marco Bitran redeemed approximately $12 million of their own money from these hedge funds, while deferring other investors’ requests for redemption.In January 2009, the United States Securities and Exchange Commission examiners learned of the Bitrans’ performance claims and asked for supporting documentation. In response, the Bitrans allegedly made false statements and provided fabricated records purporting to support their claimed actual trading performance.In total, the Bitrans lost more than $140 million of GMB investors’ principal.If the plea agreements are accepted by the court, the Bitrans will be sentenced to no more than five years in jail but no less than two years, as well as a period of up to three years of supervised release and more than $10 million in forfeiture.The details contained in this article are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.